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WSU Econ 327 Exam 1 questions with
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Assume a specific factors economy produces two goods, cloth and food, and that when representing this economy graphically, cloth is on the x-axis and food is on the y-axis. For a trading economy, - CORRECT ANSWERS ✔✔the budget constraint is tangent to the production possibility frontier at the chosen production point Over the past forty years the composition of developing-country exports has - CORRECT ANSWERS ✔✔undergone a dramatic shift from primary products to manufactures. A country has a comparative advantage in producing a good if - CORRECT ANSWERS ✔✔its opportunity cost of producing that good is lower than elsewhere. In each sector of a specific factors economy, profit-maximizing employers will demand labor up to the point where - CORRECT ANSWERS ✔✔the marginal product of labor times the price of the product equals the wage rate. Cost-benefit analysis of international trade - CORRECT ANSWERS ✔✔focuses attention on conflicts of interest within countries.
Unlike the simple Ricardian model, the specific factors model - CORRECT ANSWERS ✔✔Assumes an economy that produces two goods and that can allocate its labor supply between the two sectors International economics can be divided into two broad sub-fields - CORRECT ANSWERS ✔✔international trade and international money The potential for gains from the rearrangement of production among countries is due to - CORRECT ANSWERS ✔✔differing opportunity costs Movement of labor from a foreign country to the home economy - CORRECT ANSWERS ✔✔increases the MPL in foreign In general which of the following tend to promote the probability of trade volumes between two countries - CORRECT ANSWERS ✔✔linguistic and/or cultural affinity. historical ties. sizes of economies. mutual membership in preferential trade agreements. In the present, most of the exports from China are in - CORRECT ANSWERS ✔✔manufactured goods.
As more labor is used, holding capital constant, - CORRECT ANSWERS ✔✔the marginal product of labor decreases. "It has been all downhill for the West since China entered the world market; we just can't compete with hundreds of millions of people willing to work for almost nothing." Assuming that the statement above fails to connect wages and productivity, which of the following statements is true? A. It is cheaper to produce all goods in China because technology is more advanced there. B. It is cheaper to produce all goods in China because more workers are available there. C. It is cheaper to produce some goods in the U.S. because an absolute advantage exists here. D. It is cheaper to produce some goods in the U.S. because productivity is higher here. E. It is cheaper to produce all goods in China because wages are lower there. - CORRECT ANSWERS ✔✔D. Which of the following offers the strongest support for the Heckscher-Ohlin model? - CORRECT ANSWERS ✔✔North-South trade in manufactures According to the one-good model, international mobility of labor - CORRECT ANSWERS ✔✔increases the world's output.
Evaluate the following statement: "The world's poorest countries cannot find anything to export. There is no resource that is abundantlong dashcertainly not capital nor land, and in small poor nations not even labor is abundant." The above statement is - CORRECT ANSWERS ✔✔false because what matters for trade is the relative abundance of factors. Ricardian Model Assumptions: - CORRECT ANSWERS ✔✔1.)Labor is the only factor of production. 2.)Labor productivity varies across countries due to differences in technology. 3.)The supply of labor in each country is fixed. 4.)Two goods: wine and cheese. 5.)Workers are mobile across industries and are paid a competitive wage equal to the value of what they produce. 6.)Two countries: Home and Foreign. Unit labor requirement - CORRECT ANSWERS ✔✔Indicates the constant number of hours of labor required to produce one unit of output Calculating wage - CORRECT ANSWERS ✔✔Price per item/value produced each hour
How is relative wage determined? - CORRECT ANSWERS ✔✔By the relative supply of the relative demand for labor services Many-good Ricardian model - CORRECT ANSWERS ✔✔relative wages are determined by the intersection of the derived relative demand curve for labor RD, with the relative supply, RS Nontraded goods and services - CORRECT ANSWERS ✔✔(ex., haircuts and auto repairs) exist due to high transportation costs Why does the United States trade more with these European countries than with others (Germany, United Kingdom, France)? - CORRECT ANSWERS ✔✔These countries have the largest gross domestic product (GDP), the value of the goods and services produced in an economy The size of an economy is directly related to the volume of imports and exports - CORRECT ANSWERS ✔✔-Larger economies produce more goods and services, so they have more to sell in the export market -Larger economies generate more income from the goods and services sold, so they are able to buy more imports. Trade between any two countries is larger the larger is either country Other things besides size matter for trade: - CORRECT ANSWERS ✔✔1.) Distance 2.) Cultural affinity 3.)Geography
4.)Multinational corporations 5.)Borders Trade agreements between countries - CORRECT ANSWERS ✔✔Intended to reduce the formalities and tariffs needed to cross borders, and therefore increase trade NAFTA (North American Free Trade Agreement) - CORRECT ANSWERS ✔✔The U.S. signed a free trade agreement with Mexico and Canada in 1994 Two main reasons why international trade has strong effects on the distribution of income within a country: - CORRECT ANSWERS ✔✔- Resources cannot move immediately or costlessly from one industry to another -Industries differ in the factors of production they demand Specific factors model - CORRECT ANSWERS ✔✔Allows trade to affect the income distribution Assumptions of the specific factors model: - CORRECT ANSWERS ✔✔- Two goods, cloth and food -Three factors of production: labor (L), capital (K) and land (T for terrain) -perfect competition in all markets
What happens when the allocation of labor and the distribution of income when the price of food and cloth change? - CORRECT ANSWERS ✔✔Two cases: -An equal proportional change in prices -A change in relative prices When both prices change in the same proportion, no real changes occur With an increase in the relative price of cloth: - CORRECT ANSWERS ✔✔-Owners of capital are definitely better off -Landowners are definitely worse off -Workers: cannot say whether workers are better or worse off Gains from trade facts - CORRECT ANSWERS ✔✔-Without trade, the economy's output of a good must equal its consumption -International trade allows the mix of cloth and food consumed to differ from the mixed produced -The country cannot spend more than it earns An economy as a whole gains from trade: - CORRECT ANSWERS ✔✔- The budget constraint with trade lies above the PPF -Trade allows consumers to afford amounts of cloth and food that the country is not able to produce itself
U.S. Trade Adjustment Assistance Program - CORRECT ANSWERS ✔✔provides extended unemployment coverage (for an additional year) and tuition reimbursement (for new job skill acquisitions) to workers who are displaced by a plant closure Income distribution effects arise for two reasons: - CORRECT ANSWERS ✔✔Factors of production cannot move costlessly and quickly from one industry to another. Changes in an economy's output mix have differential effects on the demand for different factors of production. International trade affects the distribution of income in the specific factors model: - CORRECT ANSWERS ✔✔Factors specific to export sectors in each country gain from trade, while factors specific to import-competing sectors lose. Mobile factors that can work in either sector may either gain or lose.
